TODAY'S STUDY (PLUS): BET ON OIL OR NEW ENERGY?

(Note: Read it and weep. Direct from the American Petroleum Institute (API), the leading advocate for the U.S. oil and gas industry, the propaganda piece below makes the Gulf oil spill seem like a great thing the industry did for the nation and barely takes notice of climate change or air pollution.

Below the API report is a summary of an article from another renewable energy website detailing the many opportunities in New Energy. It offers guidance for investing in the nation’s future instead of investing in, as the API piece advocates, the past. Unlike the API report, the New Energy investment piece is rich in detail worth clicking thru to see.)

The State of American Energy
January 2011 (American Petroleum Institute)
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The Best Clean and Renewable Energy ETFs; For short term holders, the Powershares Wilderhill Clean Energy ETF (PBW) is the best
Tom Konrad, December 14, 2010 (Renewable Energy World)

Energy’s Role in Economic Growth, Job Creation and Providing for the Future

Our energy future depends on the ability of America’s energy companies to safely and reliably provide the oil and natural gas the United States needs to grow the economy, create jobs and enhance energy security.

It is time for a new focus on energy policy, and we remain committed to working with all policymakers to identify solutions that will advance our country’s economic interests and sustain our way of life.

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Safely Providing America’s Energy

The U.S. oil and natural gas industry has always had a strong safety performance record, and we continue to improve upon it.

Following the Gulf oil spill, our industry demonstrated its commitment to ensuring the safety of our operations. Our response to the spill in ships, materials and manpower was unprecedented. We created industry-wide task forces to identify and learn from any gaps in operations or practices. Recommendations from these task forces have already helped improve the industry’s safety performance.

Across our industry—from exploration and production to distribution and refining—we develop and constantly improve best practices for safe operations, including training, operational procedures, equipment improvements, industry standards and technology— allowing access to new energy resources while enhancing safety, efficiency and environmental protection.

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The Oil and Natural Gas Industry, an Economic Engine for Our Nation

The oil and natural gas industry’s impact on the U.S. economy is significant, supporting more than $1 trillion to the economy annually and 9.2 million U.S. jobs.1 Developing more of America’s oil and natural gas resources will help meet growing demand, create hundreds of thousands of jobs, provide revenue to federal and state governments, and enhance our nation’s energy security.

Economic growth opportunities associated with oil and natural gas development are significant. A new study from Wood Mackenzie shows the greater potential for higher government revenue from increased energy production compared to higher taxes on energy companies:

* The study found that from 2011 to 2025, negative economic consequences of higher taxes will, in the long run, more than offset any short-term tax revenue gains. Under higher taxation, revenues are estimated to decrease by $128 billion, but increased access could generate an estimated $149 billion in additional government revenue.

* More importantly, as millions of Americans struggle to find work, in 2025 more than 400,000 additional jobs are possible in the increased access scenario. The higher tax scenario could result in job loss—estimated at almost 170,000 in the peak job loss year of 2014.

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Growing the Economy by Developing America’s Energy Resources

• Oil and natural gas companies paid $1 trillion2 in total income taxes from 1980 through 2008 and more than $178 billion3 to the government in rent, royalty and bonus payments from 1982 through 2009.

• The oil and natural gas industry provides the U.S. Treasury, on average, with well over $20 million each day.

• Allowing companies to access oil and natural gas resources currently off-limits could generate an additional $1.7 trillion in government revenue.

• Industry taxes, royalties, rental payments and other development fees fund community needs, including roads, schools and parks.

• Millions of Americans benefit from the industry’s strong economic performance as shareholders in these companies through pension plans, mutual funds, IRAs and 401k plans.

• Thousands of U.S. businesses large and small depend on oil and natural gas operations. The industry supports businesses well outside the Gulf region—vendors that provide vital support and services to Gulf operations are located as far away as Pennsylvania and Illinois.

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Creating Good Jobs

• The oil and natural gas industry supports more than 9.2 million U.S. jobs, including 2.1 million direct jobs and 7.1 million indirect jobs from the purchase of goods and services.

• In 2008 and 2009, industry salaries in the exploration and production sectors were more than double the national average for all U.S. jobs.

• The number of direct oil and natural gas industry employees is larger than the populations of 15 states.

• Allowing oil and natural gas companies to access domestic resources currently off-limits could create hundreds of thousands of new jobs in the future.

With the right public policies and partnership between industry and policymakers, we can enhance our economic, environmental and energy security

API and its member companies are committed to working with policymakers to pursue a thoughtful, commonsense energy agenda—one that promotes U.S. economic growth, job creation and safe, reliable, affordable energy for the future.

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The Best Clean and Renewable Energy ETFs

If cost is the most important factor, an individual investor without the time or expertise to build a clean energy stock portfolio should choose one of the clean energy Exchange Traded Funds (ETFs)…[but] cost should not be the only factor, because the evidence suggests that, in clean energy at least, the active management available from a mutual fund or an advisor who works with individual stocks can consistently outperform the passive approach used by the ETFs.

…The total amount of money invested in general clean energy sector ETFs is over $1.1 billion, while the total invested in clean energy mutual funds is only $900 million, and the ETF total does not include the thirteen sub-sector ETFs listed below…[Included] is a comparison of the available Clean Energy ETFs.

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The Funds

There are currently five ETFs addressing the broad alternative energy sector, as well as a few sub-sector ETFs, addressing Solar (KWT and TAN), Wind (PWND and FAN), nuclear (NLR,NUCL), Carbon (GRN), forestry (WOOD and CUT), the Electric Grid (GRID), and mining firms important to alternative energy (LIT,REMX,URA.) …[T]he general clean energy sector ETFs…[are]:

- iShares S&P Global Clean Energy Index ETF (ICLN), which tracks a global index of clean energy companies.

- First Trust NASDAQ Clean Edge US Liquid (QCLN), which tracks an index of clean energy companies that are publicly traded in the United States.

- PowerShares Clean Energy (PBW), which tracks an index of US-listed companies engaged in the business of the advancement of cleaner energy and conservation.

- PowerShares Global Clean Energy Portfolio (PBD), which tracks an index of global companies engaged in the business of the advancement of cleaner energy and conservation.

- Powershares Cleantech Portfolio (PZD), which tracks a global index of cleantech companies.

- Van Eck Global Alternative Energy Fund (GEX), which tracks an index of global alternative energy companies…

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Diversification

…[The best summary of differences is] "Clean Energy" (most funds) vs. "cleantech" (PZD), and domestic (PBW and QCLN) vs. global (ICLN,PBD,PZD, and GEX.)…[M]ost investors should prefer the global ETFs to the domestic ETFs…[A]n investor seeking diversification may also prefer PZD to the other global ETFs because of the broader diversification, but this comes at a price…

Size and Liquidity

…Large investors, and investors expecting to trade frequently using market orders should care about trading volume, which is a measure of the ETFs liquidity…The ETF with by far the best liquidity is the oldest of the ETFs, PowerShares' PBW. Among the global clean energy funds providing somewhat better diversification, the most liquid is Van Eck's GEX.

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Fund Costs

Investors in ETFs can expect to bear several costs…[A] management fee…[A] commission to buy …[L]iquidity costs…[And] the internal trading costs of the fund…Since it's typically cheaper to trade domestic stocks than international stocks, the domestic ETFs probably pay lower trading costs than global ETFs given the same turnover…

The costs for broker commission and liquidity are both one-time transaction costs, and will decrease for longer holding periods or increase for shorter holding periods…[L]arger funds would have higher internal liquidity costs…

…[S]hort holding periods favor the the PowerShares Clean Energy (PBW) ETF because of its greater liquidity…[but] having better liquidity [means] a large funds size, which in turn leads to higher internal trading costs. For longer term investors, the ETF's expense ratios and internal trading costs become much more important. For a five year holding period, the iShares S&P Global Clean Energy Index ETF (ICLN) is the clear winner…Although the small fund size leads to lower liquidity and higher costs for investors trading in and out of the fund, it also means that the fund's internal trading costs will be lower because smaller trades usually have lower market price impact.

However, the differences between ETF costs are less striking than their similarities. Other than avoiding the PowerShares Global Clean Energy Portfolio (PBD), which has relatively high costs under both scenarios, the fund choice should probably be based on other factors.

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Sector Allocation

…[I]nvestors will do best with a relatively low allocation to solar PV stocks, and a high allocation to energy efficiency stocks…[and] investments in Alternative Transportation, the Electric Grid, Biomass, Geothermal, and Hydro, although these sectors are relatively small parts of all the portfolios…[A]llocation to "Other" … should be as small as possible…

First Trust NASDQ Clean Edge US Liquid (QCLN) has the highest allocation to energy efficiency, while Powershares Cleantech Portfolio (PZD) has the lowest allocation to solar. Of the six, the inexpensive iShares S&P Global Clean Energy Index ETF (ICLN) fares worst, with no allocation to energy efficiency and a large allocation to solar…PBD, GEX, and ICLN do the best at minimizing allocation to non-clean energy sectors.

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Value

Renewable energy is generally considered a growth sector…[but over] longer time periods, value stocks have consistently outperformed growth stocks…Hence I prefer ETFs which put more emphasis on value stocks…[N]one of these ETFs can be said to be truly value-oriented, but there is a significant difference between different funds. The best two in terms of value are PowerShares Clean Energy (PBW) and PowerShares Global Clean Energy Portfolio (PBD). The worst (most growth-oriented) is the Van Eck Global Alternative Energy Fund (GEX).

Summary

…[E]ach fund [can be graded] on diversification, cost, allocation, and value, using a scale from 1 to 3, 3 being best…No ETF is clearly better than the others in all circumstances…If you are a trader and plan to hold the position for less than a year, PBW serves your needs best. If you are a long term investors, PZD probably has the best balance of allocation to promising sectors and low cost…[I]f you are a long term investor more interested in Renewable Energy than Energy Efficiency and Cleantech, the best choice is probably ICLN…

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Conclusion

For traders speculating on short term gains in Clean Energy, the Powershares Wilderhill Clean Energy ETF (PBW) is the best vehicle due to its high liquidity.

For longer term investors, ETFs are my third choice as a method for investing in Clean Energy, after individual stock portfolios and actively managed mutual funds. Mutual funds may cost more, but provide as much or more diversification and have performed better (even after the higher costs) for as long as most Clean Energy ETFs have been in existence. For investors with the time or an advisor willing and able to work with individual stocks, stock portfolios offer both lower costs and the potential for better performance through better sector allocation and active management.